Money guide

The 60% tax trap between £100k and £125,140

Updated 3 August 2026 · 5 min read

There's a stretch of income in the UK where every extra pound is taxed far harder than the headline rates suggest. It isn't a secret and it isn't a loophole — it's simply how the Personal Allowance is withdrawn. But it catches thousands of people every year, usually right after a promotion.

What actually happens

Everyone gets a Personal Allowance — £12,570 of tax-free pay. But once your income passes £100,000, you lose £1 of that allowance for every £2 you earn above it. By £125,140 it's gone entirely.

So each extra pound does two things at once: it's taxed at 40%, and it drags 50p of previously tax-free income into the 40% band. The combined effect is an effective rate of 60% — closer to 62% once National Insurance is counted, and higher again if you're repaying a student loan.

It gets worse if you have young children

Crossing £100,000 also ends eligibility for tax-free childcare and the funded childcare hours in England. For a family with a toddler in nursery, that can be worth thousands a year — lost the moment you go £1 over. It's genuinely possible to accept a raise and end up worse off.

The way out: pension contributions

The taper is based on your adjusted net income, not your gross salary. Pension contributions reduce that figure. So if you earn £110,000, contributing £10,000 to your pension brings your adjusted income back to £100,000 — restoring your full Personal Allowance and stepping out of the trap.

Look at what that really costs. The £10,000 goes into your pension, but because you were being taxed at an effective 60%, the actual reduction in your take-home is around £4,000. You've moved £10,000 into your own retirement pot for roughly £4,000 of spending power. Few things in personal finance are that efficient.

Other ways to reduce adjusted net income

• Gift Aid donations — charitable giving also reduces adjusted net income.
• Salary sacrifice — sacrificing into a pension or an EV lease lowers your gross pay directly.
• Bonus sacrifice — many employers will let you divert a bonus straight into your pension, which is often the cleanest fix of all.

Should you turn down the raise?

Almost never. Being in the trap still means more money — just far less of it than you expected, and the answer is usually to redirect the excess rather than refuse it. The mistake isn't earning more; it's earning more without noticing what the taper is quietly doing.

Written in plain English by mytakehome.money. General information, not financial advice — check anything important at gov.uk or with a qualified adviser.